A newer version of your browser is available. Older versions may limit your ability to access some of this site's functionality. Citizens Bank recommends upgrading your browser.
By Stephen Sellner | Citizens Bank Staff
Credit card debt can be challenging to pay off. That’s why a lot of people look for better alternatives to settle that debt.
Balance transfer credit cards are a good option to start with. They allow you to transfer balances from your high-interest credit cards to a new card with a lower interest rate — sometimes as low as 0%, for a limited time.
However, those low interest rates are soon replaced with higher regular rates. Plus, they often charge transfer fees and require a high credit score to obtain. Fortunately, a personal loan can be another smart option for consolidating your credit card debt.
There are pros and cons to using a personal loan to tackle credit card debt. Let’s start with these four pros.
Credit cards tend to have high interest rates. That’s one reason why credit card debt can be difficult to manage in the first place. Fortunately, the right personal loan could lower your interest rate, assuming your credit score is in good shape. That would save you money on interest over the course of years.
Speaking of interest rates, credit card companies tend to lock their interest rates to the current LIBOR or prime rate, such as prime rate plus 10%. So, following that rule, if the prime rate was 5.50%, that credit card’s interest rate would be 15.50%.
Why does this matter? Because the LIBOR or prime rate can change, sometimes multiple times within a year. That means your credit card’s interest rate could go up or down, too.
Lenders offer fixed-rate personal loans. That means your interest rate would stay the same no matter how the LIBOR or prime rate changes.
Research your lending options to find the interest rate and terms that best fit your needs.
Do you carry credit card debt on multiple cards? That means juggling multiple balances, minimum payments, and payment dates.
Meanwhile, personal loans are simpler because you only have one monthly payment. That’s easier to remember so you don’t accidently miss a payment. Plus, depending on your loan terms, that one payment could be lower than the combination of all your credit card payments.
Credit utilization is a percentage that represents the amount of credit card debt you carry at any given moment compared to your credit limit. In other words, if you have a credit card balance of $4,000 and your credit limit is $10,000, your credit utilization is 40%.
Again, why does this matter? If your credit utilization is 30% or more, then it could negatively impact your credit score. And credit utilization is the second largest factor used to determine your FICO® credit score.
◆ ◆ ◆
Now that you know about the pros, let’s go over these three cons.
As stated above, a personal loan could lower your interest rate if your credit is in good shape. That might not be the case if your credit score is on the lower end.
The lender will complete a hard credit inquiry when you apply for a personal loan. Any hard credit inquiry could temporarily drop your credit score.
Not all lenders charge fees to take out personal loans, but some do — origination fees, application fees, and others. Make sure you ask about fees when comparing lenders.
A personal loan can be a great way to manage credit card debt, but that’s contingent on your specific circumstances. For instance, the benefit of a lower interest rate only applies if you’re able to secure a lower interest rate. Furthermore, some debt might be manageable enough that a personal loan isn’t necessary! Get a good understanding of your credit card debt and repayment preferences to help you make the right decision.
Are you struggling with credit card debt? Learn more about Citizens Bank’s personal loan offerings.
The zip code you entered is served by Citizens One, the brand name for Citizens Bank's lending business outside of our 11?state branch footprint. Under the Citizens One brand we offer Auto Loans, Credit Cards, Mortgages, Personal Loans and Student Loans. To learn more, please visit: